Management Accounting and its Importance in Decision Making

Management Accounting

INTRODUCTION
Management accounting is a profession that includes in management decision making,
strategic planning and performance management and provides expertise in formulation and
implementation of an organization's strategy. It is a part of accounting which presents financial
information in front of top management (Mitter and Hiebl, 2017). On the basis of management
information, managers take effective decisions for better planning and control. Management
accounting different from cost accounting and financial accounting. In the cost accounting focus
on cost centres and cost unit and financial accounting present information to outsider of people.
Management accounting present information to internal management to present actual picture of
company.
For the better understanding of the concepts, this project report choose the Excite
Entertainment Ltd which operates in leisure and entertainment industry in the UK. The presented
report focus on several kind of management accounting system and accounting reports.
Formulation of income statement with the help of absorption costing and marginal costing
methods defined with appropriate format. Along with, different planning tools for budgetary
control are also utilised and applied in effective manner. At last, different types of management
tool used to identify financial problem and management accounting system implemented to
resolve the financial problems.
MAIN BODY
TASK 1
P1 Management accounting and their requirement
Management accounting is a continuous procedure of preparing and presenting financial
and non-financial information to the board of directors. After analysing the reports and accounts
managers take effective decision and planning for further investment.
Management accounting system – It is an internal part of an organisation which is
prepared by the manager to measuring and determining the procedure of management. It deals
with the insider people such as employees, board of directors and many others (Brierley and
Gwilliam, 2017). These systems are developed by management accountant and applied in each
section to collect financial information.
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Cost accounting system – It is defined as an accounting method that is applied by the
Excite Entertainment Company to determine the amount of total cost of production. There is
analysing input cost of manufacturing process at each level. This system includes a set of forms,
processes, controls and reports that are developed to collective and report to management
regarding to revenues, costs and profitability. There are determining the cost of design of clothes.
In this manner, the accountant of the company firstly evaluated and record cost on individually
basis. After the comparison of input aspects determine the financial performance. It will help to
an enterprise to get information regarding the contribution of the clothes in profit generation of
business (Golyagina and Valuckas, 2016).
 Direct costs: It include those expenses which are directly related to the operational
activities or increase or decrease in the cost will directly affect the production as well as
profit margin. In Excite Entertainment Ltd, managers face such costs while promoting the
concerts and festivals all around UK. Standard costing: It is the common technique which is used by the most of the
organizations. Excite Entertainment Ltd collect information and identify the factors
which provide the variation between standard and actual cost.
Inventory management system – It is important system which is mainly utilised by the
manufacturing company in order to track the level on stock, selling quantity, purchase order and
delivery place. Through this system collect information of work order, bills of material and other
manufacturing papers. It is applied by Excite Entertainment Company Ltd for manufacturing of
clothes. Through this system they track record of inventory and know that how much quantity
were produced and need to complete order. It covers everything from production to retail and
take better decision for the raw material availability and consumption. There are several types of
method of stock valuation such as LIFO, FIFO and AVCO. At present, EOQ method applied by
the company to determine the actual period of time when they have make re order of raw
material.
Price optimization system – The particular system has been utilised by the accountant of
Excite Entertainment Company limited to determine the behaviour of customer for price of their
products. This system utilised to discover the sales of clothes due to increase and decrease price.
It will help to management for ascertain the value of their products. They will take reviews from
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